The funded status of all U.S. multiemployer pension plans dropped from 81% at the end of 2013 to 80% at the end of last year, according to Milliman’s Spring 2015 Multiemployer Pension Funding Study.

Multiemployer plans are those that cover the employees of two or more companies that are unrelated.

The report found that the overall funding shortfall for all plans rose by $5 billion to $117 billion by Dec. 31, 2014.

Milliman examined the IRS Form 5500 filings of 1,278 plans at the end of 2014 to make its analysis, compared to 1,294 plans at the end of 2013.

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Multiemployer plans were doing slightly better before the 2008 financial crash at more than 85% funded, but they haven’t recovered fully from the market downturn. Even with the downturn, Milliman found, “multiemployer plan funding levels have steadily improved, but leveled off in 2014.”

Favorable investment returns, increases in contributions and benefit reductions fueled the improvement in funded status since 2009.

“One common misconception is that plans should be back on their feet because the stock market has surpassed its levels from before the financial crisis,” according to the report. “However, liabilities have been growing at 7.5% per year on average, so market prices would need to be significantly higher today than they were prior to the financial crisis to have kept pace with liability growth.”

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Milliman’s research showed that only 285 of the multiemployer plans examined were funded at 100% or more at the end of 2014. An additional 522 plans were between the 80% to 100% range. Out of the remaining plans that Milliman reviewed, 270 were funded at 65% to 80% and 201 were funded at less than 65%.

Mature plans have struggled more than the other plans in the study because “benefits payments and plan expenses increasingly outweigh contributions. This ‘negative cash flow’ is expected in the life of all pension plans and is precisely why ERISA required that pension plans be pre-funded, but it does make it more difficult for plans to recover from unfavorable experience[s],” the study found.

Milliman found that very few multiemployer plans with positive cash flow fell into critical status in 2014, while 72% with negative cash flow also fell into critical status.

Plans that are listed as “critical” or “declining status” if they are projected to become insolvent within 15 to 20 years. That happens when there are more inactive participants in the plan than active ones and when a plan’s funded status falls below 80%, Milliman found.

“Large negative cash flows magnify the impact of investment volatility and make it harder for plans to recover from an underfunded status, as they are forced to liquidate assets to meet obligations before asset values can recover,” according to the report.

Investment performance is the key to financial recovery for most plans. Milliman found that more than half of the plans would need to achieve more than 8 percent in returns over the next decade to reach 100% funding. Even if they do reach 100% funded status, they will still need a 7.5% return on average to remain fully funded, according to Milliman.

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